from CAPM -a blog for CPSM wannabes

December 30, 2013

How Supply Managers Analyze Potential Sources of Goods and Services

For this topic of the CPSM exam, I had run out of time and hence there is no previous detailed post on the topic. Another possibility of neglecting to write on this section (despite a respectable 6 question load in Exam 1) is that the section is somewhat dry and operational and this post aims to make the topic more interesting and celebratory given the upcoming Happy New Year 2014!

Task 1-E-1 lists the options the supply manager tends to consider when sourcing goods or services. But guess what: this is a large chunk of the supply management job and the strategic fun comes in actually deciding which path to follow for a particular sourcing challenge.

Since a lot of non-Supply Managers also read this blog, it is worthwhile to back off a bit and understand how the buying process starts in organizations. The user department comes up with a need and has a budget and the supply (purchasing) folks are asked to find suppliers ( read the post on buy-task).

How supply managers should analyze potential sources is the subject of this section. The analysis includes:

An analysis of the existing supply base. The worst nightmare for a supply manager is a failed supplier, for any reason, and stopped production. Supply Managers tend to be risk averse, and would ideally have a few suppliers lined up - just in case. However, there may be organizational regulations that need full and open competition- for example, in Government organizations and larger buy amounts. There could be technical competition where one supplier might be able to offer superior technology or there might be single source when there is a strategic alliance or joint venture. Examples of packaging companies in equity joint ventures with consumer product companies exist that allows dedicated supplier staff and filling lines right at the buying organization premises.

Nature of sources and their effect on procurement must be analyzed. For example, it might be cheaper to import in which case the supply manager must clearly articulate issues surrounding exchange rates,duties,transportation and applicable laws. On the other hand, there might be a company mandate to encourage local suppliers and employment, in which case the supply manager will have to find ways to encourage local businesses.

Existing versus New Sources is a decision that follows the buy-task considerations unless the existing supplier is failing in significant ways. When organizations are used to old suppliers they did not change them unless there were problems of cost,quality or performance. This inertia among supply managers was primarily because it was too difficultto find another supplier. A major change in searching for suppliers today is the Internet search engines like Google, Yahoo and Bing that allows searching for local,global or any other criteria the supply manager might want to consider.